Mohammad Reza Ali Zamani, a defendant in the mass trials (right) following June’s disputed election, was executed on Jan. 28 for his alleged role in a 2008 bombing. He was accused of being part of a small monarchist group linked to the bombing – a group that sought to replace Iran’s Islamic government with a monarchy.

AFP/GETTY IMAGES/NEWSCOM

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Istanbul, Turkey — Traditionally, Iran's Islamic republic celebrates its birthday Feb. 11 with a massive rally, chants of "Death to America," the burning of US flags, and even an effigy contest.

But as Iranians now brace for the 31st anniversary of the 1979 Islamic revolution, they know that eight months of pro-democracy protest and the regime's violent reaction have transformed the relationship between rulers and ruled.

Analysts say that Iran's legitimacy crisis has now come to a head, with both sides incapable of defeating or intimidating the other – a paralysis that could continue, or yield compromise.

Opposition leaders have signaled in recent weeks that they're inching toward a face-saving way for Iran's supreme religious leader, Ayatollah Ali Khamenei, to compromise – in the interest of preserving Iran's Islamic system of government.

"I do see both Iranian society and Iranian elite structures robust enough, creative enough, flexible enough, and competitive enough to have all the elements of a gradual process of give-and-take that will lead Iran in a different direction," says Farideh Farhi, an Iran expert at the University of Hawaii.

Yet the damage has been severe to the pillars of a revolutionary regime that for decades has measured its strength by its popular support. In recent months, that support has been challenged by Green Movement protesters, who have hijacked every key date – as they are likely to attempt again on Feb. 11.

So far, Mr. Khamenei has taken an uncompromising line, calling Iranians who do not accept President Mahmoud Ahmadinejad as the victor of the disputed June election guilty of the "greatest of crimes." Scores of protesters, and some pro-regime militiamen, have been killed, thousands arrested, and detainees subjected to torture and rape. But that's no longer a tenable position, say observers.

"The reality is that increasingly other people are seeing that if [Khamenei] doesn't give an inch, then the whole regime will go," says Abbas Milani, a specialist at Stanford University. "So my sense is we are moving inexorably toward a transitional stage of compromise that will eventually lead to a much more democratic state."

During the 30th-anniversary celebrations last year, Mr. Ahmadinejad declared Iran to be a "superpower, real and true." But the political crisis of the past year has hobbled the regime, dissipated its regional influence, and set Iranians against one another in ways not seen in decades.

A critical problem are radicals on both sides, especially those on the right who can't imagine any nod toward reformists, whom they consider "apostates" and who, in the rhetoric of some regime officials, should be condemned or even killed.

"Whoever finds compromise has to do something about the Revolutionary Guard, to defang them and send them back to their barracks, [even if they] keep some of their loot," says Dr. Milani.

Top Guard commanders have boasted that their intervention in the election in favor of Ahmadinejad saved Iran from self-destruction at the hands of reformists, and that their expansion of power after the vote was a "new stage" of the revolution. Yet even that force is subject to profound changes taking place in Iran.

"The IRGC command structure doesn't work in a vacuum; it works in the context of a society where the bulk of its own membership 12 years ago voted for [former reformist President Mohammad] Khatami," says Milani. "Continuing with their current path will compromise their chance of even getting to keep what they have already taken."

The reformist camp is also a big tent, including many who want to reform but preserve the current Islamic system.

But an increasing number of protesters want a more dramatic change, even calling for the death of Khamenei.

Still, both sides are trying to control radicals and are even hinting at moves toward a new accommodation. Defeated presidential candidate Mir Hossein Mousavi ushered in the new year with a list of demands that included releasing prisoners and freeing up the press, but didn't call for Ahmadinejad's removal.

In late January, another reformist leader, Mehdi Karroubi, called Ahmadinejad the "established" president – if not the legitimate one. And prominent cleric Ali Akbar Hashemi Rafsanjani, while standing by previous criticisms, signaled that only Khamenei could end the crisis. Conservatives, too, in December engaged in tepid "debates" on state TV that aired some criticism of Ahmadinejad.

"Everyone is giving [Khamenei] an opportunity to separate himself a little bit from Ahmadinejad," says Ms. Farhi. They are telling him, "Redirect the ship you are captaining.... You don't have to move very fast ... but give us a hint that a different direction is happening."

But Khamenei, who has drawn lessons from the fall of the shah and his Pahlavi dynasty, is likely to resist compromising.

"From the shah, Khamenei has learned that if you give an inch, they'll take it all. And he keeps saying: 'I'm not the shah,' " says Milani. "But the real lesson from the shah wasn't that he gave an inch in 1978 and he lost it. The real lesson is that if he had given half an inch in 1975, we might still be talking about the Pahlavis of Iran."